Element Financial Reports Strong Q2 2012 Origination Volumes and Profitability
Income from operations reaches $0.03 per share for the quarter
Recent management changes provide added depth and capacity to step up strong origination growth
- Element reports new originations of $79.4 million in its mid-ticket business during the current quarter, a 25% increase in originations over the immediate previous quarter or an increase of $53.4 million or 206% over the $25.9 million generated during the same quarter of 2011
- Total originations for the first two quarters of 2012 were $236.0 million, an increase of $193.2 million or 451% over the $42.8 million generated during the comparative first two quarters of 2011.
- Total assets have increased to $1.0 billion at June 30, 2012 an increase of $589.7 million or 41.5% over the $416.7 million reported at December 31, 2011, the result of continuing strong originations and the addition of the acquisition of TLS on June 29, 2012
- Element Capital reports a strong pipeline with approximately $1.0 billion under various stages of consideration confirming total origination target of $250 million for 2012.
- Income from operations excluding non-cash share-based compensation and business acquisition costs was $1.9 million or $0.03 per share during the current quarter compared to a loss $0.6 million or a loss of $0.03 per share during the comparative quarter of 2011
TORONTO, Aug. 14, 2012 /CNW/ - Element Financial Corporation (TSX:EFN) ("Element" or "the Company"), Canada's leading independent equipment finance company, today announced continued strong origination growth in the second quarter of 2012 and reports income from operations excluding non-cash share-based compensation expenses and business acquisition costs of $1.9 million or $0.03 per share on net finance income of $5.2 million. For the six month period, income from operations before non-cash share-based compensation expenses and business acquisition costs was $2.8 million or $0.04 per share on net finance income of $9.2 million.
"The financial results for the three-month period ended June 30, 2012 reflect the positive impact of the growth in finance receivables and total assets of the Company resulting from strong origination volumes over the last twelve months," indicated Steven Hudson, Element's Chairman and CEO. "We are starting to see the positive impact of a sizable earning asset base and improvement in operating expense ratios where operating expenses have declined to 3.63% of average finance receivables during the quarter compared to 10.23% for the comparable quarter of 2011 and we are expecting continued improvement over the balance of 2012," added Mr. Hudson.
"The acquisition and integration of TLS Fleet Management during the period has also added an important new category to Element's origination capability that we expect will result in the addition of an average of $20 million worth of new financing transactions per month beginning in the second half of 2012," noted Mr. Hudson.
"Together with the recent additions to our senior management team, particularly the appointment of Brad Nullmeyer who will begin scaling up the growth of our vendor finance business as President of Element's North American operations, we expect to significantly step up the rate of organic growth in our origination volumes into 2013 and beyond," Mr. Hudson added.
After expensing as required under IFRS all of the $9.1 million in business acquisition costs related to the acquisition of TLS that would have been capitalized under Canadian GAAP, the Company is reporting a net loss $5.8 million or $0.08 per share for the three month period ended June 30, 2012.
As a result of the increases in the Canadian life insurance companies' term funding facilities and the establishment of a revolving facility with a Canadian trust being used to finance the TLS assets, the Company now has access to a total of $830.8 million in debt financing.
Financial Results Three-Month Period Ended June 30, 2012
Basis of presentation
The unaudited condensed consolidated financial statements for the three-month period ended June 30, 2012 have been prepared on the historical cost method in accordance with International Financial Reporting Standards ("IFRS") and are reported in Canadian dollars.
The selected financial information included in this press release is summary only and should be read in conjunction with the Company's unaudited condensed consolidated financial statements as at and for the three-month and six-month periods ended June 30, 2012 and the audited consolidated financial statements as at and for the nine-month period ended December 31, 2011, and the notes thereto, and accompanying management discussion and analysis of such results that have been filed on SEDAR at www.sedar.com.
Highlights:
- New originations reached $236 million during the six-month period ended June 30, 2012, versus new origination of $43 million for the same period of 2011. New originations were $79.4 million for the three-month period ended June 30, 2012, versus new origination of $25.9 million for the same period last year.
- Total revenue was $8.1 million for the three-month period ended June 30, 2012 versus $1.2 million for the same period last year. Total revenue was $14.6 million for the six-month period ended June 30, 2012 versus $1.9 million for the same period last year.
- Income from operations excluding non-cash share-based compensation expense and business acquisition costs, was $1.9 million for the three-month period ended June 30, 2012 or $0.03 per share, compared to a loss of $0.6 million or $0.03 per share for the same period last year. Income from operations and before non-cash share-based compensation expense and business acquisition costs was $2.8 million for the six-month period ended June 30, 2012 or $0.04 per share, compared to a loss of $$1.4 million or $0.11 per share for the same period last year.
- Net loss for the three-month period ended June 30, 2012 was $5.8 million after deducting gross business acquisition costs for $9.1 million compared to a net loss of $1.0 million for the same period last year. Net loss for the six-month period ended June 30, 2012 was $6.1 million again after deducting gross business acquisition costs for $9.1 million compared to a net loss of $1.9 million for the same period last year.
Selected Financial Information and Financial Ratios
The following table summarizes key financial data to be read in conjunction with the consolidated financial statements of the Company as at and for the six-month period ended June 30, 2012. Such financial statements are prepared in accordance with IFRS and are reported in Canadian dollars.
| (in $000's for stated values, except ratios and per share amounts) | As at and for the three-month period ended June 30,2012 |
As at and for the three-month period ended June 30,2011 |
As at and for the six-month period ended June 30,2012 |
As at and for the six-month period ended June 30,2011 |
||||||||||
| $ | $ | $ | $ | |||||||||||
| Total revenue | 8,133 | 1,211 | 14,625 | 1,921 | ||||||||||
| Operating Income | 1,936 | (600) | 2,840 | (1,405) | ||||||||||
| Operating income per share (basic and diluted) | $0.03 | ($0.03) | $0.04 | ($0.11) | ||||||||||
| Loss before taxes, inclusive of business acquisition costs | 7,686 | 949 | 7,702 | 1,885 | ||||||||||
| Net loss | 5,795 | 949 | 6,056 | 1,885 | ||||||||||
| Total assets | 1,006,397 | 124,250 | 1,006,397 | 124,250 | ||||||||||
| Finance receivables, net | 809,891 | 57,560 | 809,891 | 57,560 | ||||||||||
| Loan originations | ||||||||||||||
| Element Finance |
79,406 |
25,926 |
142,618 |
42,763 |
||||||||||
| Element Capital | - | - | 93,394 | - | ||||||||||
| 79,406 | 25,926 | 236,012 | 42,763 | |||||||||||
| Business Acquisition | 457,085 | - | 457,085 | - | ||||||||||
| 536,491 | 25,926 | 693,097 | 42,763 | |||||||||||
| Total non-current liabilities - Secured borrowings | 627,916 | 42,533 | 627,916 | 42,533 | ||||||||||
| Average outstanding finance receivable | 360,745 | 46,879 | 304,976 | 38,922 | ||||||||||
| Average outstanding debt | 205,973 | 35,895 | 182,476 | 31,460 | ||||||||||
| Number of Shares outstanding (incl. Special Warrants) | 82,979,770 | 24,286,517 | 82,979,770 | 24,286,517 | ||||||||||
| Average number of shares outstanding | 71,915,837 | 22,315,759 | 69,133,053 | 12,944,293 | ||||||||||
| Total Shareholders' equity | 312,756 | 81,196 | 312,756 | 81,196 | ||||||||||
| Average total shareholders' equity | 264,914 | 66,337 | 251,602 | 36,763 | ||||||||||
| Net loss per share (basic and diluted) | $0.08 | $0.04 | $0.09 | $0.15 | ||||||||||
Results of Operations - Three Months Ended June 30, 2012
The following table sets forth a summary of the Company's unaudited results of operations for the three-month period ended June 30, 2012 and 2011:
| (in 000's for stated values, except per share amounts) | Three-month period ended June 30, 2012 |
Three-month period ended June 30, 2011 |
|||||||||
| $ | $ | ||||||||||
| Financial revenue | 8,133 | 1,211 | |||||||||
| Financial expenses | 2,929 | 612 | |||||||||
| Net financial income | 5,204 | 599 | |||||||||
| Operating expenses | 3,268 | 1,199 | |||||||||
| Operating income | 1,936 | (600) | |||||||||
| Share-based compensation | 572 | 349 | |||||||||
| Operating income before business acquisition costs | 1,364 | (949) | |||||||||
| Business acquisition costs | |
||||||||||
| Integration costs | 2,750 | - | |||||||||
| Transaction costs | 6,300 | - | |||||||||
| Net loss before taxes | (7,686) | (949) | |||||||||
| Deferred income taxes | (1,891) | - | |||||||||
| Net loss for the period | (5,795) | (949) | |||||||||
| Basic and diluted loss per share | ($0.08) | ($0.04) | |||||||||
The Company continued on its growth plan and strategy during this second quarter ended June 30, 2012 and is reporting improved performances from operations over the quarter ended June 30, 2011. Operating income, defined as income before non-cash share based compensation and business acquisition costs, was $1.9 million for the three-month period ended June 30, 2012 compared to a loss of $0.6 million for the same quarter of 2011.
Net loss before income taxes for the quarter ended June 30, 2012 was $7.7 million as a result of the business acquisition costs for $9.1 million directly related to the TLS acquisition that would have been capitalized as part of the acquisition under Canadian GAAP but are required to be expensed as period expense under IFRS.
Finance receivables have increase to $809.9 million at June 30, 2012 compared to $56.6 million at June 30, 2011 as a result of the acquisition of Alter Moneta in August of 2011, (ii) the acquisition of TLS in June 2012 and, (ii) the organic growth in originations which has reached $236.0 million during the six-month period ended June 30, 2012 compared to $42.8 million during the six month period of the previous year. As a result, financial revenue was $8.1 million during the second quarter of 2012, an increase of $6.9 million over the amounts of $1.2 million reported for the second quarter of 2011. This increase is due to the increase in average finance receivables outstanding during the period which grew from $46.9 million during the quarter ended June 30, 2011 to $360.7 million during the quarter ended June 30, 2012. As indicated previously, this increase in average outstanding receivable reflects the acquisition of the Alter Moneta assets back in August 2011 and the total originations during the intervening periods.
Financial expenses were $2.9 million for the second quarter of 2012 compared to $0.6 million for the second quarter of 2011, an increase of $2.3 million reflecting the increase in average outstanding debt of between the periods which increased to $206.0 million during the quarter ended June 30, 2012 compared to $35.9 million for the same quarter of 2011. Financial expense as a percent of financial revenue decreased from 49.3% for the second quarter of 2011 to 27.2% during the second quarter of 2012 resulting from lower cost of debt and lower average debt leverage ratio.
Average yield on finance receivables for the three-month period ended June 30, 2012 was 8.50% compared to 8.65% for the three-month period ended June 30, 2011. The decrease in average yields was mainly related to the change in the mix of receivables as the Company added new verticals in golf equipment and healthcare equipment and aircrafts where yields are lower. However, this lower yield has been offset by a reduction in the Company's cost of borrowing which was reduced by 52 basis points overall. The combination of reduced gross yield and reduce interest debt cost has resulted in an improvement of 103 basis points in the gross margin/net financial income yield which has increased to 6.18% during the three-month period ended June 30, 2012 compared to 5.15% for the three-month period ended June 30, 2011. Total financial income has improved by 65 basis points during the three-month period ended June 30, 2012 compared to the same period of the previous year mostly as a result of reduced debt costs as the Company is better able to reduce its overall interest expense as it continues to expand.
Operating expenses were $3.3 million for the second quarter of 2012 compared to $1.2 million for the second quarter of 2011 reflecting the increased level of activities required to manage a portfolio that approaches $1.0 billion at June 30, 2012. Operating expenses have however seen a substantial improvement as a percentage of average outstanding finance receivable at 3.62% for the quarter ended June 30, 2012 compared to 10.23% for the same quarter of 2011. It is expected that this ratio will continue to improve as the company continues it growth patter and from the acquisition of the TLS business starting in the third-quarter of 2012.
Operating income was $1.9 million for the three-month period ended June 30, 2012 compared to a loss of $0.6 million for the quarter ended June 30, 2011. This translate to a yield to average asset of 2.15% compared to a loss to average finance assets of 5.11% for the same quarter of the previous year.
Shared-based compensation, which is a non-cash item reflecting the fair value of options granted, was $0.6 million during the quarter ended June 30, 2012 compared to $0.3 million during the same quarter of 2011. The increase is reflective of the increase in the level of options granted during the intervening periods.
Business acquisition costs, which consist of integration costs and transaction costs associated with the TLS acquisition, were $9.1 million. These costs would have been capitalized as part of the acquisition under Canadian GAAP but are required to be expensed under IFRS. As we have noted previously, these expenses will continue to negatively impact the Company's performance going forward as it continues on its growth plan and where such costs will continue to be expenses as incurred under IFRS.
As a result of the negative impact from the accounting of the business acquisition costs, the Company is reporting a loss before income taxes for the three-month period ended June 30, 2012 of $7.7 million compared to a loss of $0.9 million for the same quarter of the previous year where there were no acquisitions and therefore no business acquisition costs to negatively affect the overall performance.
Basic and diluted loss per share was $0.08 for the three-month period ended June 30, 2012 compared to $0.04 for the three-month period ended June 30, 2011 and resulting again from the negative impact of the expensing of business acquisition costs.
Consolidated Interim Statements of Financial Position
[Unaudited, in thousands of Canadian dollars]
The following table sets forth the Company's consolidated financial position of the Company as at June 30, 2012 and December 31, 2011:
| Unaudited | Audited | |||||||||
| As at | As at | |||||||||
| June 30, | December 31, | |||||||||
| 2012 | 2011 | |||||||||
| $ | $ | |||||||||
| ASSETS | ||||||||||
| Cash | 36,877 | 151,086 | ||||||||
| Restricted funds | 26,506 | 19,678 | ||||||||
| Finance receivables | 809,891 | 231,537 | ||||||||
| Accounts receivable and other assets | 26,621 | 4,739 | ||||||||
| Notes receivable | 6,197 | 5,422 | ||||||||
| Capital assets | 6,225 | 214 | ||||||||
| Intangible assets | 39,291 | 980 | ||||||||
| Deferred income taxes | — | 1,473 | ||||||||
| Goodwill | 54,789 | 1,586 | ||||||||
| 1,006,397 | 416,715 | |||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||
| Liabilities | ||||||||||
| Accounts payable and accrued liabilities | 36,799 | 5,857 | ||||||||
| Secured borrowings | 627,916 | 172,517 | ||||||||
| Deferred income taxes | 28,926 | — | ||||||||
| Total liabilities | 693,641 | 178,374 | ||||||||
| Shareholders' equity | ||||||||||
| Share capital | 243,651 | 243,637 | ||||||||
| Special Warrants | 78,996 | — | ||||||||
| Contributed surplus | 4,086 | 2,625 | ||||||||
| Deficit | (13,977) | (7,921) | ||||||||
| Total shareholders' equity | 312,756 | 238,341 | ||||||||
| 1,006,397 | 416,715 | |||||||||
About Element Financial Corporation
With total assets of approximately $1 billion, Element Financial Corporation is Canada's leading independent equipment finance company. Element operates nationally in three segments of the equipment finance market - Element Capital provides large ticket equipment leasing, Element Finance serves the mid-ticket equipment finance market and Element Fleet provides vehicle fleet leasing and management solutions through the Company's TLS Fleet Management division.
Forward Looking Statements
This release includes forward-looking statements regarding Element and its business. Such statements are based on the current expectations and views of future events of Element's management. In some cases the forward-looking statements can be identified by words or phrases such as "may", "will", "expect", "plan", "anticipate", "intend", "potential", "estimate", "believe" or the negative of these terms, or other similar expressions intended to identify forward-looking statements. The forward-looking events and circumstances discussed in this release may not occur and could differ materially as a result of known and unknown risk factors and uncertainties affecting the company. No forward-looking statement can be guaranteed. Forward-looking statements and information by their nature are based on assumptions and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statement or information. Accordingly, readers should not place undue reliance on any forward-looking statements or information. Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made and Element undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
SOURCE: Element Financial Corporation
Media Contact:
John Sadler
Genoa Management Limited
(416) 594-9292
[email protected]
Investor Contact:
Michel Béland
Chief Financial Officer
(416) 386-1067 ext. 225
[email protected]
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